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Damning New Report Questions Arena’s Future

January 29th, 2013 by jake · 16 Comments

There’s a new report, produced by Denis Frankenberger, set to hit Louisville in a day or so about the arena debacle. To say it’s damning would be an understatement.


The University of Louisville Athletic Association won’t be happy.

The too long, didn’t read of the report? That the KFC Yum! Center will fail and leave taxpayers on the hook:

  • Over $800 million in Debt
  • Operating Costs Exceeding $92,000 per Day
  • Lease Giving Away Millions to Tenant and Others
  • Losing more than $50,000 per day during 2011, more than $37000 per day during 2012
  • More than $30 million in losses since opening
  • Financial Impossibility to Succeed
  • A Lease that is Choking the Financial Life from the Arena (unless the Lease is renegotiated)

With all of that, there’s little left to wonder about why UofL would fight against bringing an NBA team to town. It’s because UofL would lose its sweetheart deal that’s subsidized by taxpayers under the guise of bettering downtown.

Some highlights/excerpts:

The fact is, after its first two full years of operation the following financial information obtained by the author, including an analysis of the audited financial statements, yields the ugly truth.7 Louisville’s beloved KFC Yum! Center Arena simply cannot survive unless the terms of its lease with it prime tenant the University are renegotiated into a normal lease for a “tenant” as opposed to the existing lease, which resembles an “owner’s lease” – except that the taxpayers pay for the losses instead of the owner. With this knowledge an interesting question arises: How and why was the lease structured in such a manner to begin with?

-SNIP-

In fact, the lease between the Arena Authority and the University which extends through September 30, 2044, is so onerous with such enormous disproportionate percentages of revenues going to the University, the Arena Authority with its more than $800 million dollar debt12, laboring under more than twice the Arena’s projected expenses13, has absolutely no chance of financial survival.

-SNIP-

In fact, in a September 10, 2012 Board of Directors meeting Metro Council President and Arena Director Jim King pointed out in a recitation to Mayor Greg Fischer that certain payments to the Arena Authority were needed “to prevent a debt service payment default on the Authority’s outstanding bonds.”14

This plea of course was made AFTER “Arena officials have scraped together cash to deal with previous shortfalls nearly emptying a [$3 million] building renovation fund and notifying Louisville Metro government that more city money may be needed as early as next spring” as reported in a December 23, 2012 Courier Journal front page article.

-SNIP-

There have been resignations and many changes of the Arena board members since its inception. Even today there are significant inappropriate close ties between Arena board members and the University. Inexplicably there have been directors serving on both the Arena and the University’s Athletic Association boards.

-SNIP-

One VIP Private Suite @ no charge, including the cost of its build-out, has been granted to Humana Corp for 20 years valued @ $1.25 million ostensibly for having sold property to the Arena for $11 million (the then market value) and after the Arena paying an additional $3 million to Humana as compensation for it having to move its employees.

[In response to a request to the Arena for a copy of a verified appraisal of the then market value of the real property associated with the 2007 “Property Sale and Relocation Agreement with Humana, Inc”, the Arena’s accounting firm responded on 1-22-13: “We are attempting to locate the Humana appraisal” however they included a copy of the PVA report indicating a $10,090,000 value.46

More importantly the Arena failed to answer a request for the cost associated with relocating Humana employees after the purchase. This is important because the specific stated basis for Humana’s free Arena Suite is for the Arena’s “reimbursement” for the then (2007) “anticipated” additional employee relocation cost over the $3 million paid by the Arena, which had been estimated at $1.8 million.47

However to date, there has been no reconciliation or data provided by the Arena supporting the Arena’s documented $1.25 million gift to Humana of a built-out Arena Suite for 20 years.]48

-SNIP-

Arena pays to University 50% of all revenue received by Arena from the sale of the balance (of 90%) of the Signage inside and outside the Arena excluding the 10% of the Permanent Signage reserved for the University of which University receives 100% of the revenues.

-SNIP-

The bottom line is Metro Louisville and State taxpayers are subsidizing the millions of dollars of revenues the University of Louisville Athletic Association is receiving from Arena activities at the financial peril of the Arena, and the billion dollars of financial support provided by the taxpayers and the bondholders, while the Arena is struggling for its financial life.

You may read all about the report at BillionDollarBasketball.com. The site isn’t live at the moment but is expected to be quite soon.

In the interim, you may access a copy of the report by clicking here (Warning: PDF Link).

Possibility City?

Tags: Arena · Criticism · Scandal · Sports · University of Louisville

16 responses so far ↓

  • 1 keatssycamore // Jan 29, 2013 at 12:00 pm

    Not to mention there’s legal action happening/about to happen because it leaks.

  • 2 E // Jan 29, 2013 at 12:21 pm

    …and we’re supposed to let the same political types negotiate a deal with an NBA franchise owner…hoping they don’t get chapped again?

    Yeah….sure…why not ?

  • 3 Kyle Miller // Jan 29, 2013 at 12:25 pm

    |It’s because UofL would lose its sweetheart deal that’s subsidized by taxpayers under the guise of bettering downtown.

    I have two thoughts on that. First, we need to find out what the overall economic impact of the arena is. The arena is most certainly bettering downtown, it is easy to see how Main Street has come alive in the last year showing the positive effects of the arena. The question is whether or not the impact is greater (and probably should be significantly greater) than $37,000 per day.

    Secondly, UofL was clear that it didn’t want the riverfront arena. It asked for cheaper options. The city pushed for this location, design and cost. I don’t think the burden should be pushed on to UofL for an arena built by the city. The arena has brought many positives to downtown, if for no other reason providing a prettier facade to our riverfront.

    A more complete report would demonstrate not only what it will cost the city, but what the benefits are as well.

  • 4 jake // Jan 29, 2013 at 12:31 pm

    No one questions the positives. The report itself doesn’t question them.

    It’s clear that you did not read the entire report thoroughly or you would realize the severity of what you’re claiming. You’re essentially saying that taxpayers should spend $30,000-$50,000 to subsidize a smattering of businesses.

    The report doesn’t even demonize UofL. It just illustrates the need for the lease to be reconfigured in a such a way that there’s not such a massive debt hole for the taxpayer. That can be achieved without also stiffing UofL.

  • 5 Novena // Jan 29, 2013 at 12:35 pm

    “A Massive Cardinal Boondoggle”

    When will the citizenry get up in arms about what UofL does or does not do for the larger community? The huge (and continuing) outlay of money for the Arena illustrates how far it will go to boost its obsession with B-ball, no matter what the expense to the people–and how little it educates its students? It may well be the biggest waste of money in the Commonwealth. Thanks for nothing, Jimbo and athletic boosters.

  • 6 Richard S. // Jan 29, 2013 at 12:37 pm

    Remember this article the next time you hear a politician talking about “takers” and “makers.”

  • 7 Bleu // Jan 29, 2013 at 1:02 pm

    I believe this is Karen Sypher karma coming around to bite some people in the butt.

  • 8 BernieSadori // Jan 29, 2013 at 2:07 pm

    The economic impact of the arena is >37k/day? I have to see that in order to believe it.

    Only a short sighted dip shit believes there shouldn’t be a NBA team. Will it succeed? Who knows. As long as there is an owner willing to come and the tax payer isn’t on the hook, it’s great for the city and state as long as they are here.

    Why? Glad you asked.

    -Downtown will be busier more often generating additional tax dollars.
    -Players may move here which will create a ton of additional tax dollars through salaries and their oveall spending habits.
    -Daycare centers will have to open for the additional children being created. #Jobs

    It’s up to UL to decide if the city is more important that their basketball team.

  • 9 ken thornhill // Jan 29, 2013 at 2:35 pm

    they would have to paint longer 3 point lines for the NBA, what about that expense?

  • 10 Steve // Jan 29, 2013 at 4:58 pm

    UL did push for the waterfront site as far as downtown locations go. Pitino said he would never coach a team at the water company site. Google it. Schnatter paid for a study that showed that the water company was the best for the city and Jim Host, Ramsey, Jurich, and Pitino refused that site.

  • 11 Stunoland // Jan 30, 2013 at 7:25 pm

    There are only 2 paths toward a financially solvent arena: 1) drastically renegotiating UofL’s lease and attracting a NBA team. This strategy is extremely unlikely given our poor economic fundamentals, lack of an indigenous NBA obsessed billionaire and strong in season sports entertainment competition, 2) Strong leadership pushing for local-option gaming laws that enable a downtown pro-sports wagering casino(s) in the TIF district. This strategy capitalizes on our city’s existing brand identity by extending pro-sports wagering to competitors on 2 legs. Even more important this strategy traps non-local dollars and tax revenue that will partially alleviate the City/State, Tax/Spend imbalance. This strategy is the only politically viable method to fund the much needed infrastructure investments that enable a vibrant and diverse regional economy.

  • 12 Rick // Jan 30, 2013 at 9:08 pm

    What pisses me off is that even after UL buys it for pennies on the auction block, it will STILL continue to suck the life out of Metro Louisville financially.

  • 13 Rick // Jan 30, 2013 at 9:10 pm

    “E”. They couldn’t be bigger crooks than the people there now.

  • 14 Shawn // Jan 31, 2013 at 11:19 am

    What UL has done is find a way for the taxpayers to pay for the without actually telling them that is whats occurring When the arena fails, UL will step in and buy it at a sweetheart price, leaving the taxpayers to make up the difference. Jurich is no dummy, he knows how to work the system.

  • 15 Skipper // Feb 1, 2013 at 5:24 pm

    As much as it will pain some of you to hear, but John Schnatter told you so.

  • 16 Carter Burger // Feb 3, 2013 at 3:42 pm

    Skip, people with a thumbnail’s understanding of economics said this would happen.

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